Storage giants are getting bigger, but prices will stay small

Hard-drive giant Western Digital's planned acquisition of SanDisk is just the latest of several deals that could reduce the number of companies making storage gear. Will this trend eliminate choices and let manufacturers raise prices?

No, according to analyst Jim Handy of Objective Analysis. Buying hard drives and flash won't get harder or more expensive, precisely because selling them will remain a cut-throat business for the foreseeable future, he said.

The proposed US$19 billion buyout, expected to close in the third quarter of next year, came less than two weeks after another big storage-related deal in which Dell plans to buy EMC for $67 billion. Storage silicon maker PMC-Sierra is still weighing multiple offers. And Western Digital has already helped to drive consolidation by buying Hitachi GST in 2011.

But Western Digital isn't buying SanDisk to become a bigger, more efficient maker of HDDs (hard disk drives). Instead, it wants SanDisk's core flash storage business to complement its own spinning disks. The three big suppliers of hard drives -- Western, Seagate and Toshiba -- will still be standing if the deal goes through.

Despite fast-growing demand for solid-state storage for some applications, hard disks aren't going away. Far from it, as cloud service providers like Amazon and Google try to keep up with the exploding amounts of data their customers need. HDDs offer the best mix of speed and cost for storing much of that information. While SSDs are replacing some enterprise HDDs, high-capacity hard drives in PCs and online storage are not threatened by flash, Handy says.

And the disk and flash businesses are going to keep punishing sellers while rewarding buyers, according to Handy. That's because both are largely commodity products that require huge investments in manufacturing capacity.

Once vendors have poured all that money into tooling for a particular product, they each have an interest in getting as many units as possible out of those investments. And despite overall demand for storage growing more than 40 percent per year, manufacturers are building out the capacity to feed that demand well in advance.

That leaves just one way for each to move the maximum number of HDDs or SSDs: Steal market share from rivals. Each cuts prices or keeps them low to win those sales, and buyers win, Handy said. In other words, competition still works.

Dell's acquisition of EMC will give storage makers one less big customer they can win over, but that won't reshape the business, either. "There's still a very broad field of people buying hard drives," Handy said. That includes PC makers, server vendors, telecom equipment manufacturers, and companies like Facebook that build their own systems. "For any two of those companies to merge is not going to make that big of a difference."

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